Aug. 22 (Bloomberg) -- Hundreds of U.S. Securities and
Exchange Commission lawyers and examiners face new obstacles to
cashing in on their agency experience under an expanded ethics
rule to take effect in January.

The change targets the practice of regulators moving to
jobs at law firms and investment banks where they capitalize on
their SEC relationships. The ethics rule, which previously
affected only the most senior officers, will now be applied to
everyone who earns more than $155,440 a year, according to a
copy of an agency announcement.

The employees will be banned from contacting old colleagues
for one year after leaving the SEC when the policy becomes
effective in January. Commissioners and division directors have
long faced such limits.

The rule “places us on even footing with our peer
regulators and adds an additional layer of protection against
even the appearance of impropriety when former employees take on
new jobs,” Shira Pavis Minton, the SEC’s top ethics official,
wrote in the announcement.

Law firms and investment banks regularly recruit top aides
to SEC commissioners, enforcement attorneys and examiners of
broker-dealers to help defend against investigations and advise
on compliance. More than 400 SEC alumni filed disclosure
statements saying they planned to represent clients before the
agency from 2001 to 2010, according to a recent report by the
Project on Government Oversight, a non-profit government
watchdog group.

Existing Ban

Former SEC officials who have been affected by the ban
include ex-enforcement chief Robert Khuzami, who is now working
at Kirkland & Ellis LLP, and former SEC Chairman Mary Schapiro
at Promontory Financial Group LLC.

Outside the agency, most U.S. government personnel earning
more than $155,440 a year have long been covered by the one-year
restriction. Ten years ago, the SEC won an exemption for some
workers designed to make regulators’ jobs more attractive.

In 2011, the SEC’s inspector general criticized the
exemption in a report about a former official who left the
agency to work for a high-frequency trading firm. The SEC asked
the U.S. Office of Government Ethics to remove the exemption
shortly after the IG’s report because it was no longer
necessary, John Nester, an SEC spokesman, said in an interview.

Some former SEC officials say the new policy will hurt mid-level attorneys whose value to a new employer is limited if they
can’t interact with the regulator. In particular, it will limit
the opportunities for enforcement attorneys to move to the
defense bar, where they would need to interact with the SEC,
said Stephen J. Crimmins, a partner at K&L Gates LLP and former
SEC enforcement lawyer.

“If any law firm was evaluating a middle-management SEC
employee and was being told they could not have any interaction
with the SEC for a year, it would definitely be a negative in a
hiring decision,” Crimmins said. “By artificially imposing
restrictions like this, it makes it harder for the SEC to
recruit experienced talent.”